Revolution

Thursday, July 28, 2011

Up until about a week ago, I had never heard of Megan McArdle. But then, I was linked to this blog post. And now, like many before me, I have to ask: Does this person really write for The Atlantic? How is that possible? What the hell is going on at The Atlantic?

The failure to think specifically applies to taxation, incidentally. I know a very large number of east coast progressives who are outraged when they suddenly discover that middle-class ol' them, who doesn't even have enough money to repair the cracks in the ceiling after property taxes and school bills and one not-very-nice vacation to Nova Scotia, are technically "the rich" for the purpose of assessing taxes. They, too, are not thinking specifically about where the money is. They're just thinking it would be nice for Rupert Murdoch and Bill Gates to have less stuff, while people living in housing projects have more. But there, as with cuts to the nebulous cloud of "spending", the math doesn't work. If you want to raise more tax revenues, stop thinking about corporate jets and the carried interest, and start thinking about eliminating the mortgage interest tax deduction for all earners, and allowing the AMT to kick in on the upper end of "middle class" incomes. In other words, start thinking about taxing New York Times reporters, not a very small class of rich people.

My problem with this post is not that McArdle is serving up the cult of balance Kool-Aid (although she's certainly doing that). My problem is that in order to create balance, McArdle is pretty obviously fabricating a "very large number" of hypocritical progressives to offset the actual GOP hypocrites called out by Ron Nixon.

I mean the math just doesn't work.* I sincerely doubt McArdle personally knows even one or two real-life, walking-and-talking East Coast progressives who: 1) make enough money that the proposed tax hike applies to them, but not much more; 2) mistakenly believed the proposed tax hike did not apply to them; and 3) upon learning the proposed tax hike applied to them, spontaneously reacted like a libertarian's caricature of a progressive. Claiming one or two acquaintances meet all of these criteria is dubious, but it is virtually impossible that McArdle personally knows a "very large number" of similarly situated, identically uninformed, spontaneously hypocritical, East Coast progressives.

So okay, I know this isn't the worst thing in the world. But it bothered me. This is The Atlantic.

But, with respect to the issue of fabricating sources, I soon came across this little gem from Ms. McArdle:

Yesterday, I rode the bus for the first time from the stop near my house, and ended up chatting with a lifelong neighborhood resident who has just moved to Arizona, and was back visiting family. We talked about the vagaries of the city bus system, and then after a pause, he said, "You know, you may have heard us talking about you people, how we don't want you here. A lot of people are saying you all are taking the city from us. Way I feel is, you don't own a city." He paused and looked around the admittedly somewhat seedy street corner. "Besides, look what we did with it. We had it for forty years, and look what we did with it!"

That this source was fabricated was pretty much obvious to anyone who read it (see here, here, here and here).

Now I realize it's an open joke that certain journalists invent cab drivers to introduce a theme, but the thing that sets McArdle's man on the bus apart is the racial component. Inventing an eldery, African-American man to admit African-Americans ruined the neighborhood and then have him give his blessing to gentrification because "you don't own a city" is something that Ms. McArdle could only express by fabricating an African-American to say it. Ms. McArdle's man on the bus exists to do McArdle's dirty work. And it's really dirty work.

It would be like a male reporter fabricating a female source who said: "You know, before I had children I didn't get it, but now that I'm a mother, I'm really not as committed to my career. I hate to admit it, but I can understand why women get paid less." Obviously a male reporter could not express such an overtly sexist sentiment himself. However, he could get away with it if he was quoting a woman.

And that's the thing: The McArdle man on the bus is not the Friedman cab driver everyone jokes about; the McArdle man on the bus is the Stephen Glass cab driver. And that's a much uglier thing.

The ideas being expressed by McArdle and Glass are overtly racist - tolerable only because the supposedly real people expressing the ideas are members of the targeted racial minority. Once you realize the piece is cooked, once you realize the source is fabricated, the racism is even more sinister. There is something particularly pernicious (not to mention cowardly) about fabricating an African-American to serve as a mouthpiece for a racism.

And the fact that it's an open joke that this is happening at The Atlantic is a disgrace.

By all, but a very few, it is taken for granted that politicians, pundits, wonks, the Fed - pretty much everyone in DC - will cede to political pressure and will ultimately place career above the good of the country. As Matt Yglesias revealingly notes, it's not even seen as a "particularly cynical way of behaving."

In what world is putting career over the good of the country not cynical? The answer, of course, is the Beltway.

We are, it can be argued, in a rare historical circumstance now. We're not in Nazi German to be sure, but we are in a time - one of the rare times - where political action or inaction can have dire consequences for decades to come. That the entire Beltway accepts self-interest as the unquestioned and ultimate guide to human action is disconcerting, especially when we're pursuing the kinds of economic policies that could lead to unrest.

Thursday, July 21, 2011

I've been trying to figure out what the frak these people are talking about since they're basically controlling policy these days.

The freshwater economists I know of - off the top of my head - are Robert Lucas, Eugene Fama, John Cochrane and Robert Barro. I'm sure I'm missing about 400 economists, but I think that'll be a fairly representative sample. Here's a bit of what Robert Lucas has to say:

Robert Lucas

The first point to be made about Robert Lucas is that he's a big deal. He'll tell you - but, in truth, so will everyone else. He really has done all kinds of big stuff that everyone recognizes as important.

This doesn't have anything to do with what Lucas thinks about the Lesser Depression - which is what I'm interested in - but it's such a supply-side-Jesus statement that I just felt I had to start here. Via Noahpinion:

Now, is there too much inequality? I don’t see it. I think people who drop out of high school, take drugs and so on are going to be poorer than the guys who worked hard. It doesn’t bother me at all. Why shouldn’t they be poor? It’s hard to work!

Lucas's wiki page is oddly silent regarding his life of toil, but moving along....

Look, everyone says this guy is a big deal, but economic careers will be defined by this crisis. Based on his - and his protege's - performance thus far, mentioning Lucas in a serious economics discussion may one day be met with whispers and giggles.

The key to understanding David Brooks is to understand his obsession with Edmund Burke. Of course, if the hands of David Brooks, it manifests itself as a kind of pop-Burkeanism that completely misses the key insights of Edmund Burke.

[R]ealizing that there’s a lot you can do to reverse a short-term slump isn’t magical thinking — it’s what basic macroeconomics, what we learned through hard thinking and hard experience, tells us. Rejecting all that may sound judicious, but it’s actually an act of intellectual amnesia.

Burke was suspicious of theory, but macroeconomics - at its best - is not merely theoretical. Macroeconomics is a historical, empirically-based enterprise whereby theory is honed over time and in accord with the lessons of history. I'm no Burke scholar, but no Burkean would advocate turning our backs on the lessons of history; Burke was suspicious of a priori arguments, he was not anti-rationality.

Actually, it is the freshwater economists that are making the kind of a priori arguments Burke regarded with suspicion. But the alternative to purely theoretical, a priori arguments is not superstition, it is respect for empiricism, tradition and history - a method more clearly embraced by today's saltwater economists. When Brooks called macroeconomic theory magical, he was not channeling Edmund Burke, he was channeling a villager from a Connecticut Yankee in King Arthur's Court.

And that's not a criticism. I certainly didn't understand it. But I decided to do what I could to figure it out. As usual, I've turned to PK. I think the critical blog posts are here and here. These posts and the links cited therein do a pretty good job of explaining what inflation targeting entails and laying out the case for and against doing it when you're in a liquidity trap.

Keep in mind no country in a liquidity trap has ever tried it; it's completely theoretical at this point. Moreover, what we do know is that in a liquidity trap, a lot of the usual rules do not apply - printing money, even a lot of money, didn't produce inflation in Japan. Printing money is always supposed to produce inflation. I cannot find anyone certain that the Fed actually would be able to produce the inflation required to meet the target - they could set the target, pursue the inflation-producing policies (like printing money) and not be able to produce the inflation. So, the Fed would be experimenting with, of all things, inflation - the bogeyman of economics.

Our most recent recession involved stagflation. Without going into what stagflation is all about, what's important here is that for this generation of economists - who believed the problem of depressions had been solved - inflation was public enemy number one. But even without a stagflation obsession, Zimbabwe-style hyperinflation is one of the worst things, if not the worst thing, that can happen to an economy.

Given the fact that effects of inflation targeting in a recession are currently unknown and given economists general aversion to inflation, I think it's really unlikely that inflation targeting will happen. At this point, it's hard to say which is less likely - fiscal stimulus or inflation targeting. But I'm going to have to go with inflation targeting as the less likely option.

Saturday, July 16, 2011

An idea I've been hearing from Richard Koo pretty much every time he talks was specifically discussed today by Brad DeLong and Paul Krugman.

The idea - which I am calling the "paradox of austerity" - is that when you're in a "balance sheet recession," if the government tries to cut its budget deficit, the result will actually be increased long-term debt and deficits. And more specifically, when you're in a "balance sheet recession," cutting budget deficits will cause bigger long-term debt and deficits than if you had engaged in stimulus spending. It's pretty rough, back-of-the-envelope stuff, but Brad DeLong lays out the math here. Krugman agrees that a case can be made. Richard Koo has certainly been beating this drum and Koo claims that when Japan attempted to reduce its budget deficit in 1997, the deficit exploded.

I feel like no one gets this. The press, of course, doesn't. But even economists like Kenneth Rogoff say things like "after financial crises, public debt explodes" and then seems to support efforts to cut spending and reduce budget deficits. However, if Koo/DeLong/Krugman are right about the "paradox of austerity," attempts to reduce the budget deficit may be part of what causes the long-term public debt to explode.

So, someone needs to flesh this out. Look at Japan in 1997, Japan in 2001 and follow-through on the sketch laid out by DeLong. Since deficit/debt reduction is the stated policy of pretty much the entire world, I honestly cannot think of something more pressing than knowing whether efforts to reduce the budget deficit will actually explode our long-term budget deficit and debt.